Weekly value-added in 5 minutes
Dear Procurement Managers,
Last week, we tackled the crucial role of government policies in ensuring supply chain stability, exploring how strategic alignments can mitigate disruptions. This week, we’re diving even deeper with a vital toolkit for procurement professionals: Geopolitical Risk Assessment Tools. If you’ve ever been caught off guard by sudden changes in trade relations, tariffs, or unexpected geopolitical shifts, this edition is for you. We’ll explore real-world tools and how you can apply them to anticipate and navigate these risks, ensuring your supply chain remains resilient no matter what. Let’s uncover the strategies that can protect your business from tomorrow’s uncertainties.
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This Week’s Topic: Geopolitical Risk Assessment Tools for Procurement Professionals
SCM Takeaways
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Recommended reading
C2B Takeaways
This Week's Topic:
Geopolitical Risk Assessment Tools for Procurement Professionals
In today’s volatile global environment, procurement leaders must stay ahead of geopolitical risks that could severely disrupt supply chains. By employing risk assessment tools, procurement professionals can better prepare for, mitigate, and respond to geopolitical threats. This section explores five essential tools, illustrated with a case study on Volkswagen's navigation through U.S.-China trade tensions.
Political Risk Insurance (PRI):
A risk management tool that protects against losses caused by political instability or government actions. Political Risk Insurance helps companies secure their investments by covering risks such as expropriation, political violence, and currency inconvertibility.
Case Study: During the U.S.-China trade tensions, Volkswagen used PRI to safeguard their investments in China, ensuring protection against volatile geopolitical shifts.
Examples:Expropriation prevention in foreign investments.
Shielding assets in politically unstable regions.
Protecting profits against currency restrictions.
Source:
KPMG. (2021). Political risk and crisis management insurance. KPMG. Retrieved from https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/04/political-risk-crisis-management-insurance.pdf
Country Risk Ratings:
Quantitative and qualitative evaluations of a country's political, economic, and financial risks. Ratings agencies such as Moody’s and Fitch provide procurement professionals with a baseline of country stability, helping to inform sourcing decisions and predict geopolitical disruptions.
Case Study: Volkswagen used country risk ratings to assess market stability in China, helping them decide on sourcing strategies amid rising tensions.
Examples:Forecasting economic sanctions.
Evaluating political transitions.
Understanding regulatory changes in key markets.
Source:
World Economic Forum. (2020). The global risks report 2020. Retrieved from https://www.weforum.org/reports/the-global-risks-report-2020
Scenario Analysis:
A strategic tool used to assess the impact of various geopolitical events by modeling different potential outcomes. Scenario analysis allows procurement teams to simulate different geopolitical events and prepare strategies for various possible outcomes.
Case Study: Volkswagen employed scenario analysis to predict the impact of potential tariffs during the U.S.-China trade conflict, which helped them adjust their procurement strategies.
Examples:Predicting the impact of trade embargoes.
Modeling the effects of tariff impositions.
Simulating supply chain disruptions due to political unrest.
Source:
Deloitte Insights. (2021). Global supply chains and the US-China trade war. Deloitte. Retrieved from https://www2.deloitte.com
Supply Chain Mapping and Stress Testing:
An evaluation of supply chain vulnerabilities through mapping key suppliers and assessing risks from geopolitical changes. This tool helps procurement teams identify critical suppliers in politically sensitive regions and stress test supply chain resilience against potential geopolitical disruptions.
Case Study: Volkswagen mapped its suppliers in Asia and assessed risks from geopolitical shifts to mitigate potential supply chain vulnerabilities.
Examples:Identifying choke points in supply chains.
Stress testing against sudden political changes.
Diversifying suppliers across stable regions.
Source:
Foley & Lardner LLP. (2022). Managing supply chain disruption during geopolitical risk. Retrieved from https://www.foley.com/en/insights
AI-Powered Risk Monitoring Tools:
Tools that leverage artificial intelligence to monitor real-time geopolitical developments and predict risks. AI tools continuously scan for political and economic indicators, alerting procurement teams to risks before they materialize.
Case Study: Volkswagen used AI tools to track geopolitical tensions and adjust its procurement strategies during the U.S.-China trade conflict.
Examples:Real-time alerts for sanctions and tariffs.
Automated predictions of political instability.
Monitoring news feeds for geopolitical shifts.
Source:
McKinsey & Company. (2023). Eye in the sky: Launching a geopolitical risk unit. Retrieved from https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/eye-in-the-sky-launching-a-geopolitical-risk-unit
SCM Takeaways
Understanding how to leverage these geopolitical risk assessment tools is essential for procurement professionals. In Volkswagen’s case, a combination of Political Risk Insurance, Country Risk Ratings, and AI-powered tools helped safeguard their supply chain during U.S.-China tensions. Supply chain managers can similarly implement these tools to:
Predict geopolitical disruptions and reroute supply chains accordingly.
Minimize exposure to politically volatile regions by using country risk ratings.
Improve decision-making with real-time AI monitoring, allowing for dynamic responses to emerging risks.
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Recommended reading
“The Risk Pivot: Great Powers, International Security, and the Energy Revolution” by Bruce D. Jones
This book addresses the geopolitical risks tied to energy markets, ideal for procurement professionals managing energy-intensive supply chains.“Supply Chains in Action” by Richard Wilding
Volume 2 of Logistics, Supply Chain and Procurement Case Study Collection contains new case studies (2019) tackling Supply Chain and Procurement issues, aiming to provide solutions affecting a range of different businesses. Comprehensive in scope and scrupulous in detail, this collection includes actual events experienced by businesses of every size, from SMB's to some of the most successful corporations in manufacturing, transportation, maritime and other industries.“Political Risk: How Businesses and Organizations Can Anticipate Global Insecurity” by Condoleezza Rice & Amy Zegart
This book offers a framework for understanding and mitigating political risk in global business, making it essential for procurement leaders.
C2B Takeaways
Geopolitical risk assessment isn't just for large corporations. Individuals can apply similar tools in everyday life to mitigate risks. For example:
Using scenario analysis when deciding on investment locations or international travel during periods of political instability.
Leveraging AI tools to stay informed about travel advisories or financial risks.
Evaluating country risk ratings before investing in foreign stocks or real estate.
We Learned Today
Key points:
Risk Assessment Tools are essential for procurement professionals to navigate today’s complex geopolitical landscape.
Scenario Planning and AI-powered monitoring tools can help predict and mitigate supply chain disruptions.
Volkswagen’s strategy during the U.S.-China trade tensions serves as a guiding case for managing geopolitical risk.
Thank you for reading this week's edition of ProcWee! We look forward to sharing more insights with you next week. Have a great week ahead!
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